India faces drought but economists upbeat
Crops are shrivelling as India faces the spectre of drought but
economists say they are still upbeat about the country's economic
prospects.
They are banking that a strong industrial performance will help
offset the impact of the worst monsoon in years in Asia's third largest
economy.
Analysts have been buoyed by new data showing industrial production
jumped by 7.8 percent in June from a year earlier - its quickest pace in
16 months.
Output was spurred by record low interest rates and government
stimulus that have prompted consumers to buy factory-made products such
as cars and refrigerators.
The figures last week came on top of a slew of other economic
indicators suggesting India is starting to rebound from the impact of
the worst global downturn since the 1930s.
"The domestic economy is slowly but definitely reviving," said India
director at investment house Astaire and Partners in London Deepak
Lalwani.
Even with "the rain gods playing hooky," a robust industry and
service sector outlook "should offset the (economic) hit from
agriculture," said Rajeev Malik, economist at Macquarie Securities.
Malik said he was sticking to his forecast of seven percent growth
for the current fiscal year to March 2010 although he added that "a
bigger hit to agriculture might warrant a downward revision."
India's economy expanded by 6.7 percent last year after growing by a
scorching nine percent for several years in a row.
HSBC economist Robert Prior-Wandesforde, who expects 6.2 percent
growth, said the June industrial output number "suggests there is plenty
of momentum" outside the agricultural sector.
He said there was "plenty more in the way of positive effects" to
come from the central bank's aggressive interest rate cuts and
government stimulus.
"The upside from industrial activity (is) likely to mitigate the
negative impact of poor rains," Goldman Sachs analysts Tushar Poddar and
Pranjul Bhandari wrote in a note to clients.
Economists' optimism about overall prospects stems partly from the
reduced role that agriculture now plays in India's economy - accounting
for around 17 percent of gross domestic product, down from 50 percent in
the 1950s.
Still, analysts say they are not dismissing the misery a poor monsoon
can cause, noting rural demand remains a vital driver of consumer
demand.
For India's 235 million farmers, many of them smallholders eking out
a living, a bad monsoon can spell financial disaster, wiping out
livelihoods.
India's official weather map is a mass of red - the colour the
weather office uses to show "deficient" rains, defined as 20 percent to
59 percent below normal.
Some 177 out of India's 626 districts are in the grip of drought with
rice crops the worst hit. Only a thin strip along the western coast has
received normal rain during this monsoon season, which runs from June to
September.
The country "has witnessed two monsoon failures this decade,"
Astaire's Lalwani said.
AFP |